Investing.com -- Down a day and up by as much the next: Oil’s yo-yo like behavior came after Saudi Arabia on Thursday announced as widely expected that it would extend its July-August production cut of one million barrels per day to next month as well.
As though stung — and maybe somewhat annoyed — that short sellers were making a comeback after a five-week rally cut short by Wednesday’s 2% slump, an official at the Saudi energy ministry was quoted saying the kingdom’s state news agency SPA that the cuts would not only be extended but also deepened if necessary.
“This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets," the energy ministry official said in remarks carried by the SPA agency, Reuters reported.
U.S. West Texas Intermediate, or WTI, crude settled Thursday's trade up $2.06, or 2.6%, at $81.66 per barrel. In Wednesday’s session, the U.S. crude benchmark lost 2.3%. Week to date, WTI was up more than 1%, after a near 16% gain through July.
London-based Brent crude settled up $1.94, or 2.3%, at $85.14. For the week, the global oil benchmark gained 0.3%, after running up nearly 14% for July.
Wednesday’s 2% slump in oil marked the first meaningful decline on the market since the rally in oil began a month and a half ago. It came despite the Energy Information Administration reporting an epic drop of 17M barrels in U.S. crude stockpiles last week after the agency had cited for weeks paltry inventory changes despite the production cuts claimed by the Saudis.
More interesting than the EIA report was another story suggesting the Saudis might be playing a deception game with their production cuts by “quietly selling” additional oil to the so-called PNZ, or Partitioned Neutral Zone, region it shared with Kuwait that escapes the radar of the broader market.
“Saudi Arabia has a long history of doing this, so it’s no surprise that it’s looking to increase its oil sales through extra production from the PNZ [Partitioned Neutral Zone shared with Kuwait], particularly as the area’s so off the radar, and Russia has been doing the same with its oil for months,” OilPrice.com quoted a senior source in the European Union energy security complex as telling it in a story it carried late Tuesday.
According to the source, although the joint statement by Saudi Arabia and Kuwait on 9 July said that accelerated efforts to complete joint oil projects in the PNZ are to meet local energy demands, in reality they are to provide Saudi Arabia with off-the-radar – ‘dark inventory’ – oil that it can sell through various backdoor methods at currently inflated prices, without being seen to break its official OPEC+ quota.